The first quarter of 2015 followed what we had expected for Southeast Michigan with improving numbers over last year in most categories. The jump in sales and new listings entering the market was due to a combination of a stronger buyer demand going into 2015 and a milder winter. Although this winter was no picnic, it was milder in terms of snow and temperature compared to 2014, creating more activity in the first quarter of this year over last year’s first quarter. Because the 2014 winter sales were delayed into the summer of 2014, it will take until later this summer to be able to tell how much stronger 2015 is compared to 2014. We think the buyer demand is strong, at least in the under $500,000 price ranges, and going into this year the economic conditions are much improved compared to last year. Thus, all signs point to a spring equal to or better than 2014.
Overall values are currently up 7-8% over the first quarter of 2014. For Sale inventories also improved, giving buyers a wider choice as new listings entering the market rose faster than new sales. The Months Supply of Inventory (MSI) reached its lowest point in four years at just over 2-months supply. Based on this MSI figure, it would take about 60 days to sell all the homes currently on the market at the current sales pace compared to nearly 90 days in March of 2014. The Seller’s Market that we are experiencing at present is notably stronger than the Seller’s Market that occurred last spring at this time. (Anything under three months is considered a Seller’s Market.)
The following is a summary by price segment:
Under $250,000: Inventories are the tightest in this segment, decreasing compared to last year as the number of new listings entering the market fell short of the rate of new sales. Reduced inventories yield increased prices, with this price point outperforming the rest, as evidenced by increases over 10% compared to the first quarter of 2014. Inventory levels are at about 45 days, the lowest we have seen since before the recession. We can expect new listings to rise this spring and summer, but based on better economic conditions and more favorable mortgage availability to first time homebuyers, buyer demand will be strong as well. Buyers can expect the same multiple offer activity we saw last spring, so they will need to be aggressive in their offers.
$250,000-$500,000: Sales are up due to a jump in buyer demand and the fact that we are coming off of a slow quarter last year. We are seeing sellers getting more comfortable with their home values, as illustrated by more homes entering the market and inventories rising. Although there will certainly be multiple offers in this price range, there will be fewer than last year with values rising in the 3-6% range compared to 8-10% last spring. Sellers should be aware that many homes in this segment are overpriced based on the current market activity, particularly any home that has been on the market over 90 days. The MSI for this price range is still strong. On the seller’s side of the equation the MSI is at 3.4 months, down 10% from last year at this time. This shows that buyer demand is still strong, but is being spread out over a larger listing base.
Over $500,000: The upper end markets were the first to recover and the first to settle back to a normal market. Although sales did jump quite a bit compared to the first quarter of 2014, For Sale inventories jumped even more, following the same pattern as the $250-500,000 market. Increasing inventories caused values to settle down to a more historically normal pace and many properties were overpriced by 5-10% going into the spring market. Both newly written and closed contracts jumped dramatically in March, which was good news. Though with more listings to choose from sellers will feel like the market is slower than last year, even with potentially more buyers looking. They can expect showings to be weekly, not daily and offers in terms of months, not weeks.
Overall, the market has all the right pieces for a strong spring market across all price segments and geographies. At the same time the upper end segments of each market may feel slower than last year, representing markets that are still strong from a historical perspective, but slower compared to the prior years of our recovery.
You have found the perfect agent to help you sell your home quickly and for a great price. Now what?
Now you want to make sure that your house shows well to attract potential buyers so your agent is able to sell your house quickly for the price you want or need. While it is mostly the agent’s job to sell your home, there are a number of fast and easy ways to help out.
Step 1: Tidy up. Remove any dishes or clutter from your counters and floors. Make sure any children’s toys are moved into a corner or put away out of sight. Check your bathroom counters to make sure they are neat, and check your bedrooms to make sure that your beds are made. You don’t need to get down and dirty to prepare your house for a showing, but make sure things are relatively clean and clutter-free.
Step 2: Liven up. Open your draperies and blinds, and turn on the lights. Darkness makes rooms seem small and depressed. By opening your blinds, you can also showcase any natural light that your might get into your home, which some buyers particularly like to see. Also adding a few vases of flowers around the house help to freshen up and make your house seem more lively and livable.
Step 3: Seasonal issues. If you live in Michigan, like me, then you probably know that we get a great deal of snow and ice during the winter months. If your house is going to show during the winter, try to keep your drives and walks clear of snow and salted, and to prevent any snow or salt from being tracked through your home, politely ask that shoes and boots be removed before showings. During the summer months, make sure that your grass is green and neatly trimmed, and that you have flowers in bloom to give your home that “white picket fence” feel.
While all of these easy steps may seem like common sense, you might be surprised by how much something so simple can set you apart from the house next door.Type your new text here.
Ready to get the keys to your new home yet? If your home inspection and appraisal have been completed, any potential issues have been resolved or negotiated, and you have turned in any additional documentation required by the mortgage officer you should be really close to closing. At this point, you are just waiting for a “Clear to Close” from the mortgage company saying that you are finally approved and have a green light to schedule your closing.
Once your agent receives a Clear to Close, there are still a few things that everyone needs to do before closing. First, your agent should be working with your mortgage officer and title company to ensure that all lending and title documents are being combined and sent to the seller’s title company. You will receive a final settlement figure from your agent or mortgage officer with the exact dollar and cents amount that you will need to bring with you to closing, along with instructions for your closing funds. The title company will either require you to bring certified funds with you to closing or wire the funds. Either way, the title company will give you all of the details you need in order to make sure things are done correctly.
In addition to the final paperwork aspects of closing, you and your agent will want to schedule a final walkthrough of your new home, for the day of closing if possible. Since you probably haven’t been in your soon to be home for a few weeks, this final walkthrough gives you the opportunity to ensure that the seller has maintained the property and that there hasn’t been any new damage to the property. If you do notice new damage to the property you will want to have your agent notify the listing agent immediately so something can be worked out. In most cases though, the final walkthrough should go smoothly and you can head off to your closing.
Once you have scheduled your closing, the title and mortgage companies have all cooperated in getting the full closing package together, and you have completed your final walkthrough you should find yourself sitting at a conference table with the sellers and a few title company agents – and your hand may or not be cramping from signing and initialing on what seems to be an endless number of pages. J As soon as you are done signing on the very last page though you are officially a homeowner! YAY!
Now, fast forward a little while and you are relaxing on a couch in your new home, thinking about how painless the home buying process was now that it is done. Congratulations!
If your inspection has gone well, you will want to get in to see your mortgage officer to fill out a formal mortgage application, and pay for an appraisal. Depending on which type of mortgage you are applying for there may be different documentation needed by the mortgage officer; when you call the mortgage officer to schedule a time to meet you should ask for a list of documents you should bring with you. Some common documents are valid identification and tax returns from previous years. You will want to make sure that you have everything that the mortgage officer has requested so that the application and approval process goes smoothly.
When you are meeting with your mortgage officer you should ask about the appraisal timeframe. The mortgage officer will handle the actual appraisal order, but it is always good to know how long before you will receive the appraisal report so you can track where you are on the path to closing on your new home. It has been my experience that from the time you order an appraisal is could take up to two or three weeks for you to receive the report, depending on how active the market is. The appraiser will create a lengthy report that details how they value the house based on comparable homes in the area. You are entitled to a copy of this report, which can provide you with a wealth of information. The most important part of the appraisal report is the appraised value of the property, which is the amount that your mortgage company will base their mortgage amount on.
In an ideal scenario the appraiser will agree with the purchase price of the home, or maybe value it a little higher – this is like instant equity for you as soon as you close. Similar to the home inspection however, an issue may arise if the appraised value of the house comes back lower than the agreed upon price of your Purchase Agreement. In this scenario, if the purchase price were to remain the same then you, the buyer, would be responsible for paying any additional costs on your own.
For example: If you are taking out a conventional mortgage (20% down) and your purchase price is $105,000, but the appraisal returns at $95,000, then the mortgage company will only pay 80% on the appraised value of $95,000. You would have to still pay 20% down on the $95,000 amount for the mortgage, and then an additional $10,000 to meet the purchase contract price of $105,000. This means that you would be paying an additional $8,000 in closing costs.
Paying more doesn’t sound so great, but do not worry. The seller may be willing to negotiate the selling price, even though they aren’t required to. A low appraisal, while being a potential deal-breaker, can create a lot of leverage for a buyer because the seller will have an extremely tough time convincing anyone to pay more for their house than it is actually worth. In other words, it is usually in the seller’s best interest to be somewhat flexible if the appraisal comes in low and they want to sell their house.
The entire home buying process can be a series of negotiations, and nothing is set in stone until you are at the closing table. Remember, there is no reason for you to panic if the appraisal of your new home comes in low, and it may actually work to your advantage to save a few dollars if your agent can skillfully negotiate with the seller on your behalf.
YAY! Things are really starting to come together and your offer was finally accepted, but what now?
Now, it is time to schedule your private home inspection. Per your Purchase Agreement (PA), you will have a time frame within which you must complete your home inspection. Refer to your PA to see how long you have, but the sooner you schedule it the better.
To find a good home inspector you can turn to family and friends again to see who they have used, or you can rely on your agent, who can probably recommend a few great inspectors they have worked with in the past. Some buyers try to shop around for inspectors, which is fine, but you don’t know exactly what you will get, so I would recommend working on a referral from someone you know and trust. You may even be able to get a little discount from the inspection company if you are a referral or if your agent knows when an inspection company offers discounts.
One question a lot of buyers have is, “Should we be there for the inspection?” The short answer is: YES! The inspector will be able to walk through the home with you and point out what he or she notices about the home, discuss potential problems and solutions, or answer any questions you may have. A good inspector will always take the time to make sure that you are comfortable with the information that is in the inspection report, and explain everything so you know exactly what you are buying.
Hopefully your inspection goes smoothly and you want to continue with the purchase of the home. If this is the case, then you will want to fill out a contingency removal and send it to the seller to notify them that you are satisfied with the inspection results and would like to continue with the purchase. If, however, there are some issues that you believe the seller should address, then you may have the option of requesting that the seller fix something or discount the purchase price to make up for any repairs that you may have to make when you close on the house. Your ability to ask for repairs or discounts all depends on whether or not the sale is “as is.” Finally, in the worst scenario, you discover a major issue that puts you off from the house, in which case you have the option of canceling the purchase contract, and restarting your search for a new home.
Remember, the inspection is for your knowledge. In my experience, very few houses pass inspection with an absolutely clean report, so don’t sweat it if the house you want to buy doesn’t either. You just have to ask yourself if a problem with the house is something you can live/work with or not; knowing that when you purchase the home you will be able to make all of the changes, little repairs, or touch-ups you want when the house is yours.
A Realtor can tell when a buyer is going to make an offer because the buyer's face lights up as we are seeing a home. Chances are that you have found “the one” when you start talking about your plans for a house or how you would decorate, and can go beyond simply commenting on the condition of the house.
Once you have found the house that you can see yourself calling home, you will want to make an offer to purchase the house, and this is a job for you and your Realtor. You will want to sit down with your Realtor and go over the comparable sales in the neighborhood for the past 3-6 months to help determine a fair market sales price for your home. The trick of writing a strong offer is somewhat of a balancing act when you set your initial price. You obviously want to be in the neighborhood price range so you aren’t overpaying, but you still have to give some weight to the listed sales price of your particular home because you are about to enter into a negotiation after all, and you won’t want to come in too low so as to upset the seller and start off negotiations on the wrong foot.
In addition to signing all of the agency disclosures, property disclosures, and purchase agreement, and and other addenda, there are a few other very important things to include to make a strong offer. In order to make yourself look like a strong, qualified, and experienced buyer you will want to make sure that your agent includes your mortgage pre-approval letter to show that you are a qualified buyer for the house. Second, you will want to make an Earnest Money Deposit (EMD) at the time of your offer too so that the sellers know that you have a serious interest in purchasing their home. The rates of EMD vary depending on the market, type of offer, and the price of the house.
Once you have everything together your offer is ready to send to the seller’s agent for consideration. Remember, that your strongest leverage at this point is seeming experienced and together. Too often agents will let clients send bits and pieces of an offer to the listing agent, and this sends the wrong message to start.
This post is the first formal post in my “Buying A Home” series, but is actually somewhat of a prelude to the entire series. For more information and tips about beginning your search for a new home please see my post “Not Sure What You Are Looking For?”
This series is written to help serve as a guide for all buyers; especially for first-time homebuyers and those who haven’t made a purchase in a long time. I hear too often now from potential buyers that they don’t know what the steps are to buy a new home, and it seems like a daunting task, especially when they Google the steps or check out a book store for a guide to buying a home. The massive number of articles online, and thick books in bookstores can easily make purchasing a home seem like an extremely complicated process.
Purchasing a home can be quite easy though, and over the course of this blog series, I will break the process into a number of simple steps that will make the steps clearer, and more navigable for any buyer.
The absolute first step to buying a new house is to make sure that you qualify for a mortgage, and which type of mortgage is best for your budget. Purchasing a house is one of the biggest investments of your life, and will almost always include you getting a mortgage to help with your purchase. An easy way to find a reliable mortgage officer is to ask family and friends. Chances are that someone you know worked with a mortgage officer that they found very easy to work with. Put together a list of mortgage officers recommended by friends and family, and call them to ask about their interest rates, and any specials they might be able to offer you, and share with them your plans so they can speak to your needs.
Once you have spoken to a few mortgage officers and feel comfortable working with one, you will want to ask to be pre-approved for a mortgage. In order to be pre-approved you will need to provide important personal and financial information so your pre-approval can be as accurate as possible. Each lender has their own pre-approval process, so the details and requirements will vary.
As a part of your pre-approval, the mortgage officer may approve you for the maximum amount possible by default, but you should focus on the monthly payment amount. To ensure that you are comfortable with the monthly mortgage payment you will want to discuss your ideal payment with the mortgage officer so he or she can find the price range of houses that best match your budget.
In my experience, there is nothing worse than seeing houses at the top of your price range only to find out that you aren’t comfortable with the associated monthly payment, and having to begin your house search all over again in a lower price range. Likewise, you want to make sure that you aren’t being so conservative with your monthly payment that it will make it nearly impossible to find a home that matches what you are looking for.
Once you receive your pre-approval letter from the mortgage officer send it to your Realtor and let them know that you are ready to start setting showings to kick-off your search for a new home.